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Friday 05.13.2016

Gold Demand Up 21% In Q1; ETF Demand Spikes: World Gold Council

The World Gold Council just released its first-quarter trends report Thursday, which found that gold demand was up 21% in the first three months of 2016 to 1,289 tonnes, the strongest first quarter on record. As for ETFs specifically, the World Gold Council said demand spiked: Inflows of 363.7 tonnes was the highest since the start of 2009, as volatility around the world spurred investors to seek safe havens.

According to the report, the demand was broad-based, from both individual investors and institutions: Notably, there is anecdotal evidence that many of these inflows are from investors initiating or rebuilding strategic, long-term holdings after the wash-out of positions since early 2013. While a portion of the inflows were driven by price momentum and likely to be more tactical in nature, latent demand among investors who have been looking for an opportunity to re-enter the market was a key factor.

The Council writes that while gold ETFs are mostly popular in the Western world, they are spreading to China and other areas: Inflows into gold-backed ETFs in China have risen exponentially in recent months. Although they still only account for a very small proportion of the 1,974t2 held in these products globally, Chinese gold-backed ETFs on aggregate attracted 11.1t of inflows during the first quarter, more than doubling their holdings in the process. Huaan Yifu Gold ETF surpassed all other funds in Asia: total holdings at quarterend were 13.5t, up 10.3t from the end of 2015. Although institutional investors were reportedly the driving force behind this flood of inflows, retail investors were also a considerable contributor, looking to gold for diversification and wealth protection.

Gold prices were up 17% in the quarter, and the report adds that the demand in the ETF market was echoed by “surging physical demand” for bars and coins, especially in the U.S.

Kansas Fed President Says Interest Rates Too Low, Pose Debt Risk

The Federal Reserve is keeping interest rates too low and risks encouraging companies to take on excessive amounts of debt, Kansas City Fed President Esther George said on Thursday.

Fed policymakers generally agree they should raise rates gradually but George dissented at the last two policy meetings, arguing for hikes, and her comments on Thursday suggest weak economic growth in the first quarter has not changed her mind.

“I support a gradual adjustment of short-term interest rates toward a more normal level, but I view the current level as too low for today’s economic conditions,” George said in prepared remarks for a luncheon with business and community leaders in Albuquerque, New Mexico.

The Fed tightened policy in December, ending seven years of near-zero interest rates, but has since held them steady. Investors anticipate one rate increase this year although policymakers have signaled two hikes will likely be needed.

Ralph Lauren profit falls 77% as sales slump

Ralph Lauren Corp. said its profit fell 77% in the latest quarter as the apparel company's sales and margins were hurt by moves to clear inventories in its U.S. business. However, shares rose 3.6% to $87.50 in recent premarket trading as per-share earnings, excluding certain items, beat Wall Street views and revenue edged past expectations.

The Ralph Lauren board also authorized the repurchase of an additional $200 million of the company's stock. Chief Executive Stefan Larsson, who has been conducting a review of the business, said in prepared remarks the company would disclose details of its strategic plan to strengthen the brand and drive profits at its investor day set for June 7.

Mr. Larsson unveiled the review in February after the apparel company reported a 39% drop in quarterly profit and cut its sales outlook for the current year. At the time, he said he wanted to bring more focus to the company. He also was taking a hard look at pricing and distribution -- including its business with department stores such as Macy's Inc. and Nordstrom Inc.

On Wednesday, Macy's set off fresh fears about the health of the U.S. retail sector, after the country's largest department-store chain reported its worst quarterly sales since the recession. Nordstrom is set to release its first-quarter results Thursday after the bell. Mr. Larsson, who joined Ralph Lauren from Gap Inc.'s Old Navy business last year, has made some management shifts including February's elimination of the position of global brands president. In February, Ralph Lauren said it was bringing part of its supply-chain operations in-house. The shift, part of what Ralph Lauren says is a long-planned action, will move warehousing and inventory management service from a North Carolina distribution center into a new, far larger distribution center that the fashion retailer will operate.

Fed Dropping Rates To Zero For Hillary Clinton

Wendy’s to replace workers with kiosks in up to 6,000+ restaurants

Wendy’s announced this week that they will launch their biggest expansion of self-serving kiosks to be made available at more than 6,000 restaurants across the country. The restaurant chain has been struggling, with their stock taking a significant dip this week.

Wendy’s President Todd Penegor admitted that restaurants have had to raise prices due to an increase in the minimum wage in many cities and states. Franchises will now have the choice of whether or not to use the technology to save on these labor cost increases.

Investors Business Daily points out: “It’s not surprising that some franchisees might face more of a labor-cost squeeze than company restaurants. All 258 Wendy’s restaurants in California, where the minimum wage rose to $10 an hour this year and will gradually rise to $15, are franchise-operated. Likewise, about 75% of 200-plus restaurants in New York are run by franchisees. New York’s fast-food industry wage rose to $10.50 in New York City and $9.75 in the rest of the state at the start of 2016, also on the way to $15.”

Wendy’s hasn’t been the only restaurant group to make the shift. Executives and former executives from the industry have been vocal about the coming jobs cuts due to these minimum wage hikes. In April, Jamie Richardson, a vice president at White Castle, said, “this could create a whole generation of kids who won’t get their first job. We’re in tough neighborhoods — and White Castle hasn’t abandoned those neighborhoods. On the surface, higher pay seems noble, but it’s not — because it denies the reality of the free-enterprise framework that has allowed small businesses like ours to thrive.”

Connecticut to cut over 2,500 jobs under state budget deal

The budget bill has to pass through both the House and the Senate before Governor Dannel P. Malloy can sign it. Malloy is urging the legislature to get it passed. It makes serious cuts to state government and includes consolidations, all to close an almost billion dollar shortfall for next year.

Originally, Malloy said 2,500 positions would be eliminated, but on Wednesday he said the current budget deal calls for the additional elimination of positions. That number includes retirement and attritions, along with layoffs.

Malloy said this is necessary to not raise taxes and to eliminate future deficits, more positions need to be on the chopping block. "We're closing in on a thousand job eliminations thus far. There will be additional job eliminations required under this budget,” Malloy said. “The exact number of which is not known because people are retiring or leaving service prior to retirement."

The Office of Fiscal Analysis, a non-partisan entity, analyzed the budget bill and found it would dramatically lower estimates of future budget deficits.

Gallup survey: Millennials are the job-hopping generation

The latest Gallup poll confirms what many have observed about the millennial generation: They job hop. The report finds that 21 percent of millennials -- which includes people aged 20 to 36 -- say they've changed jobs within the past year. This is three times the number of non-millennials who changed jobs during the same period.

Millennials, who were born between 1980 and 1996, are now the most dominant generation in the workplace with 53.5 million of them -- roughly one-third of the workforce in 2015, according to Pew Research. In its study, Gallup surveyed 1,700 American workers.

Half of millennials strongly agree that they plan to be working at their company one year from now compared with 60 percent of non-millennials. Gallup also found that 60 percent of millennials are open to a different job opportunity, compared with 45 percent in other generations.

Why are millennials seeking new job opportunities so often? Gallup found that only 29 percent of them are engaged in their work, meaning they are connected to their job emotionally and behaviorally. Conversely, 16 percent are not engaged.

'No one Understands Gold'

How does gold still have stamina? This is the question one economist is asking himself after recently making adjustments to his forecast for the yellow metal. The Oversea-Chinese Banking Corp. is among a slew of banks that have recently upped their outlook on gold, announcing Thursday that it sees gold ending the year $100 higher than its previous forecast.

“All-in-all, we upgrade our gold price forecast to $1,200/oz at end 2016, from our initial outlook of $1,100/oz, given the diminished probability for the Fed to inject two rate hikes as indicated by the Fed fund futures,” noted Barnabas Gan, the OCBC’s commodity economist and once deemed one of the most accurate precious-metals forecasters.

“Moreover, the many events into 2016 may inject risk-aversion sentiments, led by the Brexit referendum, OPEC’s June meeting and November’s U.S. election, thus giving safe havens like gold a shine,” he added.

Gold futures were nearly unchanged Thursday, last down $1.10 at $1,274.40 an ounce. Despite understanding gold’s appeal among risk-averse investors, Gan said he remains bearish “given that our bearish view is largely underpinned by the expectations for the FOMC to hike rates further.”

Obama Adviser Susan Rice Tells College Students: National Security Workforce Is Too ‘White’ and ‘Male’

President Barack Obama’s national security adviser, Susan Rice, lamented that the national security workforce isn’t diverse enough during her commencement address at Florida International University Wednesday.

Rice addressed “the profound importance of our diversity in the realm of foreign policy and national security” according to prepared remarks of her address, adding that, despite “those who deride our diversity,” in her work she sees “why it matters every day.”

“We must acknowledge that our national security agencies have not yet drawn fully on the strengths of our great nation,” she said. “Minorities still make up less than 20 percent of our senior diplomats — less than 15 percent of senior military officers and senior intelligence officials.” “Too often, our national security workforce has been what former Florida Senator Bob Graham called ‘white, male and Yale,’” Rice continued. “In the halls of power, in the faces of our national security leaders, America is still not fully reflected.”

A lack of diversity, she said, leads to “groupthink,” while a diverse workforce “enables us to unlock all of our nation’s talent.” “Moreover, we want our national security leaders to reflect America’s best self to the world and inspire others to follow our example,” Rice said.

Lost Jobs In Recessions

The WSJ has a nice article showing just how hard it has been for many people who lost jobs in the recession to get back to work. Their profile is typical of what I have read and not the typical picture of unemployment: Middle age middle managers. The paper by Steve Davis and Till von Wachter is here. They present the fact largely as a puzzle, which it is: "losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data."

As the story makes clear, the problem is really not unemployment. There are lots of jobs available. The jobs just don't pay much, and don't use the specialized skills that the workers have to offer. The problem is wages at the jobs they can get.

This is a very interesting fact, with many less than obvious interpretations. It strikes me as a good teaching moment for economics classes. The natural interpretation of all correlations is causal: There are two identical workers in two identical jobs at two identical companies. One worker happened to lose his or her job in a recession, and so faces a harder climb back. We learn about the difference in job markets over time.

Maybe, but the job of being an economist is to recognize lots of other possibilities for a correlation. So the proposed discussion question: what else might this mean? How does taking averages reflect selection rather than cause?

Retailers Can’t Stave Off Store Closures And Bankruptcy Forever

What goes up must come down, and considering the rapid pace of innovation in retail today, it shouldn’t be too much of a surprise that plenty of once-thriving brands are finding themselves speeding toward hard landings instead. The first quarter of 2016 has already seen a fair number of brands bowing out, but whether it’s bankruptcies, widespread store closures, across-the-board staff layoffs or just the first hints at retailers sliding into periods of market distress, May keeps delivering more and more retailers into the clutches of an uncertain financial future.

Teen fashion retailers haven’t fared well in a landscape filled with more flexible fast-fashion upstarts, and the latest mall-chic brand to kick the bucket was 2000s staple Aéropostale. The news came down last week that the teen/tween apparel brand would be closing 154 of its remaining 800 store fronts as soon as possible following its Chapter 11 filing, but its nightmare won’t be over until it settles a developing spat with one of its suppliers over alleged fixed prices and overcharges totaling in the $25 million range. Wherever Aéropostale and its remaining retail footprint end up, it’ll be a far cry from the $3 billion valuation it held as recently as 2010.

Teen fashion wasn’t the only segment to see one of its bright spots flame out early. BlackJet, a briefly successful version of several “Uber for planes” startups, grounded itself permanently on Friday (May 6) as a result of dried-up revenue streams. BlackJet had relied on membership fees to fuel its fleet of on-demand charter aircraft, but CEO Dean Rotchin had to call a spade a spade when even funding from venture capital firms and celebrities alike (see: Ashton Kutcher, Will Smith and Jay Z) failed to keep the business aloft.

“We probably did more with less than anyone, but it’s a critical mass business,” Rotchin told Fortune. “There’s a reason why ‘critical’ is part of ‘critical mass.'” It wasn’t just flashy startups and outdated apparel that saw their futures spoil last week. For every fast-fashion disruptor, there’s another working to undermine how legacy grocery retailers have hawked their wares for decades. On Monday (May 2), New York grocery chain Fairway Market — famous for its towering produce displays on Manhattan sidewalks — folded to the pressure of not just the Whole Foods and Trader Joe’s of the world but also to business siphoned off by dollar stores and mass convenience shops. “Nobody slices a fish or boils a bagel like us,” Fairway CEO Jack Murphy said in a statement. “Nobody.” If Fairway can’t restructure over the next few months, nobody will.

EPA Spending $90,000 a Year for ‘Environmental Justice Academy’

The Environmental Protection Agency is spending $90,000 a year on an “Environmental Justice Academy.” The agency recently honored its first graduates of the academy, which it describes as a “rigorous, in-depth leadership development program.”

“EPA provided the nine-month environmental justice training program to cultivate skills participants can use to identify and address environmental challenges in their communities,” the agency said.

Topics covered in the course include “how to leverage human, social, intellectual, technical, legal, and financial resources to make long-term progress in a community,” and “how to use consensus-building processes and skills to help ensure successful collaboration and negotiations.” The academy is based on the EPA’s “Collaborative Problem-Solving Model,” a seven-step flow chart that urges communities to work together to “bring about positive change” for sustainability.

The EPA defines environmental justice as the “fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.”

The End Game

Disney Shutting Infinity Game Unit, Cutting 300 Jobs

Disney said Tuesday it is shutting down its Disney Infinity line of video games, saying the changing market is too risky. The company booked a $147 million charge, mostly for unsold inventory. It also laid off about 300 employees, most of them based in Salt Lake City at Avalanche Software, a game studio Disney bought in 2005.

CEO Bob Iger told analysts the risks "caught up with us." Although the unit did well -- bringing its interactive division into profitability in recent years -- Disney determined it was better to manage the risks by licensing characters rather than developing video games from scratch, he said.

"That business is a changing business, and we did not have enough confidence in the business in terms of it being stable enough to stay in it," Iger said.

Disney Infinity, a platform that brought characters from its "Pirates of the Caribbean" into the same digital sandbox as those from "Cars" and "Frozen," was launched in 2013 as a way to jump on the "toys to life" bandwagon made popular by the game "Skylanders." Real-world action figures were placed on pads and meant to activate in the video game world. When Infinity launched in August 2013, it helped Disney pull its Interactive business to profitability after years of losses, and it was a precursor to the Playmation line of smart, connected toys Disney launched last year. But diminishing sales of Infinity hurt the consumer products unit that was merged with the interactive division last summer.

Can Puerto Rico escape its $72 billion debt trap and avoid Greece’s fate?

To almost no one’s surprise, Puerto Rico missed a US$422 million debt payment earlier this month, triggering fears among investors that additional defaults are on the way and increasing pressure on Congress to act.

The warnings that this would happen could hardly have been louder. The major credit rating agencies long ago cut Puerto Rico’s $72 billion in debt to some of the lowest levels. Its bonds have been trading at steep discounts to their face value for several years. And in December, Puerto Rico Governor Alejandro García Padilla told the U.S. Senate that his government had “no cash left” and would need to restructure its debt or face “disastrous” consequences.

And this week, Treasury Secretary Jack Lew visited the island with a similar message, urging lawmakers to act and highlighting the crisis’ human toll. The warnings thus far, however, have fallen on deaf ears, leading to this month’s inevitable default. The only question is – as it has been for a long time – how to resolve the crisis before it spins out of control. At stake is years of falling incomes and house prices, chronic unemployment and lost economic opportunities – typical outcomes of unresolved debt crises, as citizens of Greece can attest.

Debt crises are typically contentious and take a long time to unwind. I’ve been researching financial crises for 25 years, and several unique features promise to make Puerto Rico’s especially messy. These include years of economic decline, no standing in U.S. bankruptcy courts and hedge funds intent on seeking to collect as much possible in a lawsuit. At this juncture, resolution of the crisis without action from Washington is hard to imagine.

The Foundation Of The Financial Markets Took A Big Hit In 2015

The Global Financial Market took a big hit in 2015 and most investors have no idea why. The U.S. and global financial system both sit on a foundation that continues to erode each year. While the disintegration of the global financial substructure has been going on for many years, last year was a BIG ONE.

How big? Well, lets say…. the worst in 60 years. So, what am I referring to here? Well, I imagine some of you who have been reading my work for several years probably have an idea. However, before I share this information, I wanted to say a few things about the precious metals.

Last week I listened to the Future Money Trends, EPIC Silver Debate! Bull vs Bear: Gary Christenson & David Trungale. The silver bull was Gary and the silver bear was David. Basically, Gary provided technical and some fundamental data why he saw the price of silver moving much higher over the next two years, while David said the market would continue to see low silver prices for quite some time.

David Trungale stated that someone who bought silver in 1980 (at the top) would have to wait several decades to get the return on one’s investment (I am paraphrasing here). Mr. Trungale believes that it could be quite some time before silver investors saw higher prices. I gather David is gauging his silver forecast by low inflationary forces and a similar silver washout timeline from 1980-2005.

Bank of England's Brexit warning explained

Why America's middle class is leaving the city

As it shrinks nationwide, America’s middle class is leaving the urban core. According to a study released Wednesday by Pew Research Center, the middle class is dwindling in nine out of ten cities around the country, while the lower and upper classes are growing.

The decline coincides with decreasing wages across nearly every income level. Median household income nationwide in 2014 was 8 percent below the level seen in 1999. Wage inequality also rose in 2015, continuing a decades-long trend. The gap between middle and lower-class wages has held relatively stable since 2000, but the distance between the very wealthiest sectors of the population and the 99 percent continues to grow as their incomes also climb.

Wages did grow slightly in 2015, but the upper class reaped most of those benefits. The Great Recession's impact both on wages and employment still lingers, Rakesh Kochhar, Pew's associate director of research, tells the Christian Science Monitor in a phone interview.

“Because of the economic downturn, employment took a huge hit, and there is still a fair amount of slack in the labor market, [which is] going to keep income on the lower side,” he says. Pew looked at numbers from 229 out of 381 “metropolitan statistical areas” that the Census Bureau identifies and uses in its data. What Pew found was that people are migrating across class lines: some families moved into a lower-income bracket, while others entered the upper class. And that trend isn’t isolated to just those 229 major metropolitan areas.

U.S. Steel Sinks as Another Wave of Cheap Imports Predicted

Just when it looked as though U.S. steelmakers had repelled a tide of cheap imports, more attractive prices risk inviting another wave of shipments. The most iconic U.S. producer is bearing the brunt of concern.

U.S. Steel Corp. shares fell as much as 10 percent in New York Thursday, the biggest loss among large iron and steel stocks tracked by Bloomberg. That’s as surging U.S. steel prices and falling Chinese prices boost the appeal of targeting the U.S. market even after import tariffs were introduced in recent months for some products. AK Steel Holding Corp., another domestic producer, fell 4.6 percent. Nucor Corp. was little changed.

“A boat load of imports are likely on the way,” Gordon Johnson, an analyst at Axiom Capital Research said in a research note Thursday, reiterating a sell rating for U.S. Steel on prospects of losses before items for the remainder of the year.

The Pittsburgh-based producer founded by Andrew Carnegie in 1901 is retreating from its best year in more than a decade after prices for raw materials such as iron ore fell, spooking investors who expect steel prices to follow, David Gagliano, an analyst at BMO Capital Markets, said by telephone. “A lot of hedge funds will buy a company like U.S. Steel based on whether they expect steel prices to rise or not,” Gagliano said. “People are starting to re-think this view that prices in the U.S. are going to stay elevated when raw material costs are coming down.”

Weekly Jobless Claims Bring Back Scares to the Great Employment Economy

Weekly jobless claims posted a serious jump in the week ending May 7. The U.S. Department of Labor announced that seasonally adjusted claims rose a sharp 20,000 to 294,000. This gets the figure closer to that old 300,000 weekly norm. Thursday’s report of 294,000 in weekly jobless claims was handily above expectations. Bloomberg had the estimate at 267,000 and Dow Jones had an estimate of 265,000.

As usual, the Labor Department said that no special factors had an impact on this week’s initial claims. This marked the highest level of claims going back to February 2015. And this report marked the 62nd consecutive week of initial claims below 300,000, the longest streak since 1973.

The four-week moving average was 268,250, an increase of 10,250 from the previous week’s unrevised average of 258,000. Additional data also showed weakness, and this could be setting the stage for the weak payrolls gains in April to continue in May. The continuing claims (with a one-week lag) rose by 37,000 to a level of 2,161,000. This was the highest level for insured unemployment in the four prior weeks.

Additional data also showed weakness, and this could be setting the stage for the weak payrolls gains in April to continue in May. The continuing claims (with a one-week lag) rose by 37,000 to a level of 2,161,000. This was the highest level for insured unemployment in the four prior weeks.

Friday 05.13.2016

NEWS to Disturb the Comfortable...

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