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Thursday 07.14.2016

Fed Says Economy Growing Modestly With Slight Price Pressures

The U.S. economy expanded at a modest pace since mid-May amid “slight” price pressures and some softening in consumer spending, a report from the Federal Reserve’s 12 districts showed.

“The outlook was generally positive across broad segments of the economy including retail sales, manufacturing, and real estate,” according to the Fed’s latest Beige Book, an economic survey by reserve banks published eight times a year. “Districts reporting on overall growth expect it to remain modest.”

The Fed’s policy-setting panel next meets July 26-27. Investors see a less than 5 percent probability of a rate increase at that meeting, according to pricing in federal fund futures contracts, as officials weigh global risks after the U.K. voted June 23 to leave the European Union.

The Beige Book, released Wednesday in Washington, summarizes comments received from business contacts around the country. It was based on information collected on or before July 1. Fed officials are weighing progress on their mandate for maximum employment and hope that higher wages will feed through into an uptick in inflation as the economy advances.

Bank of England readies new blast of QE for post-Brexit Britain

Hailed by investors as a weapon to fight off recession but slammed by critics for fuelling inequality, quantitative easing looks set for a comeback in Britain as the Bank of England tries to shield the economy from the fallout of Brexit.

The central bank is poised to cut interest rates as soon as Thursday and will probably follow up soon afterwards by reviving the massive bond-buying program that it credits with helping to shore up the economy after the global financial crisis.

Economists are now asking how the BoE might tailor QE to meet the problems Britain faces in the aftermath of last month's vote to leave the European Union - a result that threw the country into political chaos and has sparked fears of recession.

Most economists polled by Reuters expect the BoE will cut rates to a new record low of 0.25 percent on Thursday, followed by an extension of the QE program which it adopted as the financial crisis raged in early 2009, probably in August. Following the lead of the central banks in Japan and the United States, the BoE created 375 billion pounds ($496 billion) between 2009 and 2012 to buy government bonds to get money flowing through the economy.

Peter Schiff: Fed Policy and US Economic Data

Minimum Wage Increase Wouldn’t Help The Economy Much: BAML

Minimum wage has long been a hot topic in politics, with some arguing that raising it would improve the economy. Others argue that all it will do is push prices higher, leaving minimum wage workers in the same or a worse position than they were in before the increase.

Bank of America Merrill Lynch economists Michelle Meyer and Alexander Lin ran the numbers on the minimum wage hike and discovered that the overall impact it will have on the economy will be rather small. Those who support an increase say it must go up so that workers who are on minimum wage will be able to keep up with rising costs.

On the other hand, small business owners take a huge hit when it goes up, and those who advocate against raising it say it will reduce employment. If they’re right, this would be a troubling trend at a time when the Federal Reserve is trying to boost employment and support U.S. households. The June jobs report surprised to the upside, but after digging deeper into the numbers, Gluskin Sheff economist Dave Rosenberg discovered that “employment actually declined 119,000 in June and has been faltering now for three months in a row.”

The U.S. Labor Department said the economy added 287,000 jobs in June, marking the best improvement since October and smashing the consensus of 180,000. However, officials revised May lower to an 11,000 gain from the previous estimate of 38,000 jobs added. Rosenberg stated in his July 8 Breakfast with Dave note that net, the back revisions for the last two months show a loss of 6,000 jobs. And then there are the jobs relating to the striking Verizon workers, which amounted to about 35,000 net, he explained. In other words, there’s much more to the jobs story than what the headline beat tells us.

Venezuela Military Seizes Major Ports as Economic Crisis Deepens

Venezuelan President Nicolas Maduro on Tuesday greatly expanded the duties of his military chief General Vladimir Padrino to make him responsible for the distribution of food and medicine and put the military in charge of overseeing five of the country’s major ports.

As the crisis-plagued country slides deeper into an economic crisis, Maduro created a new campaign to root out the corruption and mismanagement that has caused Venezuela to run out of many basic goods.

Maduro put Army Gen. Efrain Velasco in charge of the port authority, which will directly oversee five of the country’s main ports at Guanta, La Guaira, Puerto Cabello, Maracaibo and Guamache.

As protests over food rationing and long lines at stores occur with increasing regularity, Padrino said he hopes that putting the military in charge of distribution will help calm some of the unrest and looting. But hd warned that he does not want to militarize the country.

China hacked the FDIC - and US officials covered it up, report says

China's spies hacked into computers at the Federal Deposit Insurance Corporation from 2010 until 2013 -- and American government officials tried to cover it up, according to a Congressional report.

The House of Representative's Science, Space and Technology Committee released its investigative report on Wednesday. It presents the FDIC's bank regulators as technologically inept -- and deceitful.

According to congressional investigators, the Chinese government hacked into 12 computers and 10 backroom servers at the FDIC, including the incredibly sensitive personal computers of the agency's top officials: the FDIC chairman, his chief of staff, and the general counsel. When congressional investigators tried to review the FDIC's cybersecurity policy, the agency hid the hack, according to the report.

Investigators cited several insiders who knew about how the agency responded. For example, one of the FDIC's top lawyers told employees not to discuss the hacks via email -- so the emails wouldn't become official government records. FDIC Chairman Martin Gruenberg is being summoned before the Congressional committee on Thursday to explain what happened. The FDIC refused to comment. However, in a recent internal review, the agency admits that it "did not accurately portray the extent of risk" to Congress and recordkeeping "needs improvement." The FDIC claims it's now updating its policies.

More renters sour on homeownership, some blame student debt

As home prices and rents continue to rise, confidence in the housing market is starting to wane. It is showing up in weaker traffic at open houses and less interest in taking on a mortgage as some worry about their student debt loads.

The numbers are dropping, and a new survey from the National Association of Realtors only adds fodder to the current market's failings. While three-quarters of Americans surveyed in the second quarter of this year still think now is a good time to buy a home, the numbers are slipping, especially among renters. Just 62 percent of renters said now is the time to move to homeownership, down from 68 percent at the end of last year. Those under the age of 35 were the least confident. Millennials today have the lowest homeownership rate of their age group in recorded history.

On the flip side, nearly 4 out of 5 people who currently own a home, as well as respondents over the age of 55, said now is a good time to buy. That is likely because homeowners have seen their equity increase dramatically in just the past year, as prices rise. In fact, home equity jumped by a collective $260 billion in just the first quarter of this year, according to Black Knight Financial Services.

"Existing-home prices surpassed their all-time peak this spring and have climbed on average over 5 percent nationally through the first five months of the year and even faster in areas with severe supply shortages," said Lawrence Yun, chief economist of the Realtors. "Most homeowners appear to realize that if they're ready to sell, they'll likely find a buyer rather quickly and be able to use the sizable equity they've accumulated in recent years towards their next home purchase. Meanwhile, renters interested in buying continue to face minimal choices, strong competition and home prices growing faster than their incomes."

Why Helicopter Money Won’t Push Stocks Higher

In effect, helicopter money turns the entire economy into a Ghost City. The possibility that Japan might launch helicopter money stimulus sent global stock markets soaring in a paroxysm of pleasurable anticipation. But exactly what is helicopter money and what connection does it have to stock valuations, if any?

Broadly speaking, helicopter money is government deficit spending that is directed to households rather than the financial sector. Deficit means the government doesn't have extra cash to pay for the stimulus program--it borrows it by selling government bonds.

With interest rates near-zero or even negative, it doesn't cost governments much to borrow huge sums from future taxpayers. All bonds are borrowed from future taxpayers, because somebody will have to pay back the principal, even if there are no interest payments due.

Typically, bonds that mature (i.e. the principal must be returned to the owner of the bond) are replaced with newly issued bonds. In other words, government debt never declines, as new debt is issued to replace bonds that come due AND to fund additional spending. The nearest household analogy is a mortgage which you "pay off" by borrowing an even larger sum every few years. The debt just keeps getting larger as time goes on.

Suddenly, banks want you and are willing to pay

In the past few years, consumers could be forgiven if they got the impression that banks didn't want them as customers. It seems like it's been one new fee after another.

But lately, banks seem to be putting out the welcome mat, offering more rewards and incentives. New research from Bankrate.com found that banks in the 10 biggest markets in the U.S. are actually paying consumers to open a checking account.

The researchers found that banks are now paying between $10 and $400 as sign-up bonuses to open new accounts. But the offers might have a short lifespan. "Consumers can certainly benefit from taking advantage of a sign-up bonus," said Claes Bell, data analyst at Bankrate.com. "However, promotions come and go, so it's important for consumers to act quickly if they see an offer that's desirable."

But in its report, Bankrate notes there are often conditions consumers must meet to collect the bonus, and it may or may not be worth it. The requirements vary from bank to bank. Among the most common are paying bills online, using direct deposit, and even minimum deposits. "Although these offers are tempting, consumers need to be mindful of the fine print,” Bell said. It wasn't too long ago that banks were actually closing accounts of customers it no longer wanted. That was in the wake of the financial crisis, when financial institutions were under more stress. For consumers still using banking services, many faced higher maintenance fees.

New Peak for US Health Care Spending: $10,345 Per Person

The nation's health care tab this year is expected to surpass $10,000 per person for the first time, the government said Wednesday. The new peak means the Obama administration will pass the problem of high health care costs on to its successor.

The report from number crunchers at the Department of Health and Human Services projects that health care spending will grow at a faster rate than the national economy over the coming decade. That squeezes the ability of federal and state governments, not to mention employers and average citizens, to pay.

Growth is projected to average 5.8 percent from 2015 to 2025, below the pace before the 2007-2009 economic recession but faster than in recent years that saw health care spending moving in step with modest economic growth.

National health expenditures will hit $3.35 trillion this year, which works out to $10,345 for every man, woman and child. The annual increase of 4.8 percent for 2016 is lower than the forecast for the rest of the decade. A stronger economy, faster growth in medical prices and an aging population are driving the trend. Medicare and Medicaid are expected to grow more rapidly than private insurance as the baby-boom generation ages. By 2025, government at all levels will account for nearly half of health care spending, 47 percent.

'No vacation' Obama spends $80 million, on vacations

President Obama, who famously suggested he would give up taking vacations if he was elected president, has spent nearly $80 million of taxpayer money on vacations.

That’s according to the newest total compile by Judicial Watch, which has been monitoring those costs since Obama moved into the White House and started getting away to Hawaii, sending his kids to Mexico for spring break and his wife to Africa.

Judicial Watch said Wednesday the information from the Department of Homeland Security shows the Obama family’s August 2015 vacation on Martha’s Vineyard cost taxpayers $465,420.49 in Secret Service expenses alone.

“The records were obtained through a Freedom of Information Act (FOIA) lawsuit filed on November 24, 2015,” the organization reported. “Judicial Watch sued the Department of Homeland Security, of which the Secret Service is a part, because it had failed to respond to 19 FOIA requests from Judicial Watch since July 21, 2014.

May takes office, barbell investment strategy in view

Just Two Out of Five Americans Spent Less Than Their Incomes in 2015

An improving economy has left Americans feeling more confident about their finances, burdened with less debt and better equipped to confront a crisis. But that hasn’t translated into more savings for the long run, with participation in retirement-savings programs remaining largely flat.

Following the steady recovery in the economy and job market since 2009, a new survey on financial capability shows marked improvement in people’s ability to weather short-term financial hardships–even as many still face income declines and medical expenses.

A survey of more than 27,000 Americans, released Tuesday by the FINRA Investor Education Foundation, showed the ratio of respondents who have set aside three months of emergency funds rose to 46% last year, compared with 40% for its previous survey in 2012 and 35% in 2009.

About 62% said they could certainly or probably come up with $2,000 if an unexpected need arose within the next month, up from 56% in 2012. The increase in rainy day funds reflects improvement in overall financial standing, which in turn reflects gains in the broader economy. The number of respondents who had no difficulty covering expenses and paying bills rose to 48% in 2015 from 40% in 2012 and 36% in 2009.

Healthcare spending rising faster than inflation

U.S. spending on healthcare in the Obamacare era is growing faster than inflation, on track to make up one-fifth of the economy by 2025.

The latest health spending data indicate that in the first few years of President Obama's Affordable Care Act, there has been a moderate decline in the number of uninsured Americans, the government is paying for a larger share of healthcare, and spending is growing faster than right before the law but slower than in the decade preceding it.

Healthcare spending grew by nearly 8 percent annually in the two decades before the recession, but then slowed for several years. Now it's ticking up again as more Americans have gained coverage under the healthcare law, growing by 5.3 percent in 2014 and by 5.5 percent last year.

Through 2025, national health expenditures are expected to grow by an average of 5.8 percent per year, driven by increases in economic growth, faster growth in medical prices and the aging U.S. population, according to data released by the Centers for Medicare and Medicaid Services published Wednesday in Health Affairs.

Average CEO pay was $15.5 million in 2015, down from 2014

Average CEO pay for the top 350 biggest firms was $15.5 million in 2015, according to a new report released by the left-leaning Economic Policy Institute. That represents a 276 to 1 pay ratio to the typical worker.

What’s shocking is that’s down from last year. In 2014, the CEO-to-worker compensation ratio was 302 and the average pay was $16.3 million.

Economist Lawrence Mishel, who led the study, was initially surprised. “CEO compensation is something that usually doesn’t go down unless there’s a big tech bubble burst [like] in 2000 [or a] financial crisis,” he said.

He wondered: Are we seeing some restraint in executive pay, or is it something else? The Economic Policy Institute’s measure for CEO compensation includes salary, bonuses, long-term incentive payouts, restricted stock grants and stock options. It just so happens that the stock market went down in 2015 — and as a result, the value of CEO stock options went down, and they cashed in fewer stock options. The Economic Policy Institute estimates that this alone accounted for more than 80 percent of the decline in pay between 2014 and 2015.

The Dow And The S&P 500 Soar To Brand New All-Time Record Highs – How Is This Possible?

The Dow and the S&P 500 both closed at all-time record highs on Tuesday, and that is very good news. You might think that is an odd statement coming from the publisher of The Economic Collapse Blog, but the truth is that I am not at all eager to see the financial system crash and burn. We all saw what took place when it happened in 2008 – millions of people lost their jobs, millions of people lost their homes, and economic suffering was off the charts. So no, I don’t want to see that happen again any time soon. All of our lives will be a lot more comfortable if the financial markets are stable and stocks continue to go up. If the Dow and the S&P 500 can keep on soaring, that will suit me just fine. Unfortunately, I don’t think that is going to be what happens.

Of course I never imagined we would be talking about new record highs for the stock market in mid-July 2016. We have seen some crazy ups and downs for the financial markets over the last 12 months, and the downs were pretty severe. Last August, we witnessed the greatest financial shaking since the historic financial crisis of 2008, and that was followed by an even worse shaking in January and February. Then in June everyone was concerned that the surprising result of the Brexit vote would cause global markets to tank, and that did happen briefly, but since then we have seen an unprecedented rally.

So what is causing this sudden surge? We’ll get to that in a moment, but first let’s review some of the numbers from Tuesday. The following comes from USA Today…

All three major indexes gained 0.7% apiece, as the Dow jumped 121 points to a new all-time closing high and the S&P 500 built upon its record close notched Monday. The blue chips now stand at 18,347.67, about 35 points above the previous record set May 19, 2015. The new mark for the S&P 500 is 2,152.14, a 15-point improvement on its Monday close.

Anaheim gives Disney a tax break for a new luxury hotel

The operators of the Happiest Place on Earth are a bit happier today. Following lengthy debate, the Anaheim City Council voted to give Disneyland a tax break of about $267 million over the next 20 years to build a luxury hotel on what is now a parking lot near the theme park.

The tax break, which was created last year to promote the construction of high-end hotels in the city, calls for a 70% break on the city’s transient occupancy tax for any hotel that is rated as four-diamonds or above by AAA’s hotel standards.

The vote of 3-1 Tuesday night, with opposition from James Vanderbilt, confirms that the tax incentive applies to the 700-room hotel proposed by Walt Disney Parks and Resorts on a 25-acre parcel at 1401 Disneyland Way. The council also approved the same tax break for two other four-diamond hotels, a 634-room hotel on West Katella Avenue and a 580-room hotel on South Harbor Boulevard.

Mayor Tom Tait spoke out against the tax break, saying the incentive was not needed. However, he left for a meeting in Washington before the vote took place. The latest tax incentive comes nearly one year after the council voted to exempt the theme park from any new ticket taxes for the next 30 years as long as Disney invests at least $1 billion in the park before 2024. Disney may have met that obligation with a 14-acre expansion for its new Star Wars Land project.

Rob Kirby-Silver is Kryptonite to Central Bankers

Americans fail basic financial literacy test

Can you figure out the amount of money you would owe on your loan after one year of interest? If not, you are part of about two-thirds of Americans who can’t pass a basic test of financial literacy.

The National Capability Study, conducted by the FINRA Foundation, surveyed 27,564 Americans, from June through October of last year, according to an article by Madaline Farber for Time. FINRA is a quasi-government organization that regulates brokers and Wall Street.

From the article: Bonds presented one of the biggest problems for respondents of the survey. Just 28% knew what happens to bond prices when interest rates fall. (They rise.) And less than half of all Americans appear to be able to answer basic questions about financial risk.

In fact, more Americans failed the test today than in 2009, according to the article. While 37% of Americans could pass the test this time around, in 2009, 42% could pass it. This inability to pass a simple financial test is despite the Consumer Financial Protection Bureau’s attempts to educate homebuyers. The study also shows that some groups are worse off today than they were even during the recession.

Silver back at two-year high

Silver futures returned to a nearly two-year settlement high on Wednesday, as the U.S. stock market paused their recent rally, providing a lift to gold prices, which marked their first climb in five sessions.

The recent rally in U.S. equities SPX,had tarnished the appeal of precious metals, often used as a hedge against higher-risk investments. September silver SIU6, +1.43% which has been the highflier relative to gold in recent weeks, added 24.2 cents, or 1.2%, to settle at $20.413 an ounce. Silver, which has been getting an additional boost from its use as an industrial commodity, saw its highest settlement since late July 2014, according to FactSet.

Meanwhile, August gold GCQ6, +0.65% gained $8.30, or 0.6%, to finish at $1,343.60 an ounce following a four-session decline. In electronic trading, gold futures topped $1,344 after the latest Federal Reserve beige book survey released Wednesday afternoon raised questions about the broader health of the U.S. economy in the second half of the year. Weak economic data can dull expectations for an interest-rate increase, which is supportive for gold prices. Higher rates tend to reduce demand for precious metals that don’t offer a yield.

“We will be watching to see how gold performs against a backdrop of steadily improving equity markets,” said Edward Meir, independent commodity consultant at INTL FCStone, in a note. “We still think that the preponderance to ease further, now being pursued by a host of central banks, will likely provide an element of support to gold and prevent a noticeable deterioration in the hard-won gains the precious metal has chalked up so far th is year,” he said.

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