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Monday 08.15.2016

Stores to customers: "Cash not welcome here"

To get a glimpse of the future of commerce in America, look no further than Sweden.

The Scandinavian country is largely a cashless society, with consumers relying on mobile phone payments or plastic. While the U.S. is still far from achieving the same level of cash-free existence, increasing numbers of restaurants and retailers are now snubbing the lowly dollar bill.

Some merchants such as SweetGreen, a salad chain, refuse to open their registers for cash, telling customers they can pay only with mobile payments or cards. With some newer vending machines, only a card or mobile wallet will get that cold Coca-Cola to roll down the chute.

The stance may appear un-American -- after all, currency is considered legal tender for all debts or dues -- but the Treasury permits private businesses to set their own policies, which means going cashless is fine with Uncle Sam. "What we've seen is a push toward electric payments because of convenience, especially for Generations X and Y and onward," said Greg Burch, vice president of strategic initiatives as Ingenico Group, which makes payment systems for merchants. "The phone has become more personal than the wallet has."

As Everyone Now Sees "Bubbles In Credit", Debt Investors Quietly Exit Stage Left

With first the ECB, and now the BOE, having encroached into the corporate credit markets (last week we showed that the ECB was now directly funding European purchases of US companies), one would expect a full-blown frontrunning surge as investors bid up bonds ahead of purchases by two central banks, who will shortly encounter a substantial shortage of willing bond sellers. Which is what happened just after the recent announcements.

However, even as they buy, credit investors know the good times won't last. In fact, in a paradoxical twist, as BofA reports in its August’s survey of IG and HY market participants, as the ECB and BOE intervene and now directly manipulate the credit market, investors have been inclined to pare down risk.

As BofA reports, its high-yield survey shows that investors have reduced risk significantly over the past two months and now running an UW positioning again, compared to OW in June. Cash positions have increased from 3.1% in June, to 3.3%. Current cash balances are now off the lows we saw in June. Outflows from HY funds and the increase in cash balances have contributed to the risk reduction in the asset class.

Why? Because nearly half of investors are sober enough to appreciate what it taking place: a "bubble in credit."

Americans are starting to get worried about the 'new housing crisis'

Americans are catching on to the rise in home prices. The gap between the demand for new homes and the supply coming onto the market, which we've dubbed "the new housing crisis," has caused prices to soar and priced out many first-time homebuyers.

In fact, San Jose became the first city in the US to have a median house price of $1 million for a single-family home in the second quarter, according to the National Association of Realtors.

According to Friday's University of Michigan Consumer Sentiment Survey, people are taking notice of record-low interest rates, which could be a reason for the incredibly high number of people who are planning to buy a new home in the next six months.

"Home buying has become particularly dependent on low interest rates, with net references to low interest rates spontaneously mentioned by 48% — this figure has been exceeded in only two months in the past ten years," said the release accompanying the survey. The read through here is that Americans are beginning to see the writing on the wall that record-low mortgage rates may soon begin to rise if the Federal Reserve hikes rates. Therefore, the urgency to buy a home may increase.

‘Crexit’ & the dark heart of Italy’s banking crisis

Ruby Tuesday Closing 95 Underperforming Restaurants

Diners across the country will have one fewer salad bar to peruse with their lunch or dinner, as Ruby Tuesday announced it will close nearly 100 restaurants by the end of the year.

Tennessee-based Ruby Tuesday revealed in its fourth quarter report on Thursday that it will close 95 underperforming locations by the end of the year as part of a “Fresh Start Initiative.”

While the company hasn’t identified which of its 724 restaurants will be closed, it said the decision was made after a comprehensive review of its corporate-owned restaurant portfolio. Performance at the targeted locations was not meeting exceptions, the company said.

In all, the company said Thursday that its revenue declined 5.9% during the 2016 fiscal year, with same-store sales declining 3.7% over the previous year. The locations are expected to cease operations by September. Full-time and part-time employees impacted by closures will be offered positions in nearby restaurants where possible, the company said.

Central Banks Are Choking Productivity

If the Economy were a car, productivity would be the engine. Heated seats, on-demand 4-wheel drive and light-sensitive tinted windshields, are all very nice. But they mean little if the engine doesn’t turn and the car just sits in the driveway. The latest productivity data from the Commerce Department confirms that our economic engine is sputtering.

If you strip away all the bells and whistles of economic analysis, the simple truth is that the increased living standards that have taken us from the stone age to the digital age happened because we increased our productivity. Better plows, windmills, bulldozers, factories and, more recently, better software, technology and automation, have allowed economies to produce more output with less human effort. This means there are more goods and services for more people to share and workers can work less to acquire those goodies. When productivity stops increasing, no amount of financial gimmickry can compensate.

With this in mind the latest batch of productivity data should have significantly changed the conversation. But like other pieces of evidence that point to a weakening economy, the news made scarcely a ripple. The fact that few opinions about our economic health changed as a result, confirms just how big our blinders have become.

Most of the economic prognosticators were fairly confident about the Second Quarter numbers. After all, productivity had unexpectedly declined for the prior two quarters, and given the optimism that is ingrained on Wall Street and Washington, a big snap back was expected. The consensus was for an increase of .5%. Instead we got a .5% contraction. That’s a huge miss. The contraction resulted in three consecutive declines, something that hasn’t happened since the late 1970’s, an era often referred to as the “Malaise Days” of the Carter presidency. That time, which spawned such concepts as “stagflation” and “the misery index,” was widely regarded as one of the low points of U.S. economic history. Well, break out your roller disco skates, everything old is new again.

Tim Cook addresses Apple's US taxes, says no repatriation without 'fair rate'

Apple CEO Tim Cook struck back at critics of the iPhone maker's strategy to avoid paying U.S. taxes, telling The Washington Post in a wide ranging interview that the company would not bring that money back from abroad unless there was a "fair rate."

Along with other multinational companies, the tech giant has been subject to criticism over a tax strategy that allows them to shelter profits made abroad from U.S. taxation.

The move complies with the letter of the law, if not the spirit, as a few particularly strident critics have lambasted Apple as a tax dodger. The nonprofit Citizens for Tax Justice estimates that big companies have parked more than $2 trillion offshore, which is subject to more favorable tax rates.

However, in response to a question from The Post, Cook acknowledged that Apple was effectively taking advantage of a massive tax loophole, which he said was perfectly legal." "The tax law right now says we can keep that [profit] in Ireland or we can bring it back."

Gold medalist Ryan Lochte & 3 other US swimmers robbed in Rio

IMF Wants Japan to Boost Wages Using Nixon Strategy in Reverse

In a sign of how worried it is about Japan’s economy, the International Monetary Fund is urging the country to resurrect a radical strategy once employed by former U.S. presidents Nixon, Ford and Carter -- only in reverse.

It’s called an incomes policy -- and it involves the kind of direct government intervention in the setting of wages that many economists now abhor. But rather than employing it to try to contain salary and price pressures -- as U.S. leaders did in the 1970s -- the IMF wants Japan to use moral suasion, tax breaks and, as a last resort, penalties to prod companies into granting bigger pay gains and thus promote higher inflation.

“We need policies to support wage increases in Japan,” Luc Everaert, IMF mission chief for the country, told reporters on Aug. 2 after completion of the agency’s annual consultation with the world’s third-largest economy.

The IMF’s backing of such an unorthodox approach is an acknowledgment of how entrenched Japan’s “deflationary mindset” has become and how resistant it’s been to a more traditional mix of policies. It’s also the lending agency’s answer to exhortations by some economists that Japan launch so-called helicopter money -- direct central bank financing of the government’s budget deficit -- a strategy Everaert said has “very large risks.”

Here’s how the government is stealing more than ever before–

The year was 1986. Top Gun was the #1 movie in America. Halley’s Comet was visible with the naked eye. Microsoft went public, instantly making Bill Gates one of the wealthiest people in the world. And the US government took in $93.7 million through a little known authority called “Civil Asset Forfeiture”.

As you’re likely aware, Civil Asset Forfeiture is a legal process that allows the government to seize assets from private citizens without any due process or judicial oversight. People can be deprived of their private property without ever having been even charged with a crime, let alone never having actually committed one. The horror stories of its abuse are endless. People who have never done anything wrong have had their life’s savings, homes, and business assets confiscated without so much as a warrant. This constitutes theft, plain and simple. And like most government initiatives, it started small.

Again, the statistics from 1986 show $93.7 million worth of cash and property was seized by the government. By 2014, that figure had grown 4,667% to a whopping $4.5 billion. And we learned in 2015 that the government stole so much private property from its citizens that the total amount exceeded the value of all property stolen by every thief and felon in America combined.

It reminds me of that sign Ron Paul used to keep on his desk during his tenure in Congress: “Don’t steal. The government hates competition.” The public also learned about all the extraordinary incentives for state, local, and federal police agencies to steal from private citizens. The entire idea behind Civil Asset Forfeiture is that they can confiscate your property, then put the burden on YOU to prove that you didn’t do anything wrong in order to get your property back. So much for innocent until proven guilty.

Surging Precious Metals Prices & U.S. Energy Inventories… One Is Good, The Other Isn’t

As the precious metals prices surged this year, so did U.S. petroleum inventories. While rising gold and silver prices are a positive sign for the precious metals industry, the surging U.S. petroleum stocks are extremely negative. However, the prices of the metals and energy are currently not trading based on the fundamental values.

For example, the price of oil continues to rally on the back of rising U.S. and world petroleum stocks. This is especially true in the United States. Not only are total U.S. Gasoline stocks higher this May compared to the same period last year, they are up considerably over the past decade:

Total U.S. Gasoline (Blending) stocks hit a record high for the month of May, reaching 219 million barrels. Last year, total U.S. Gasoline stocks were 196 million barrels… 23 million barrels less. Now, if we go back to May 2000, total U.S. Gasoline stocks were five times less at 45 million barrels.

Of course, some folks would quickly reply that this is due to Americans driving more and consuming more gasoline. Well, that would be correct if it were true. Unfortunately, it isn’t. I went to the EIA – U.S. Energy Information Agency and looked at total U.S. Transportation Energy consumption going back until 1950.

Goldman Sachs, Morgan Stanley, JPMorgan, “Other Banks” Ask Fed to Let them Dodge the Volcker Rule till 2022

A decade after the first cracks of the Financial Crisis appeared – and six years since the Dodd-Frank law was enacted to prevent another Financial Crisis and to pave the way for resolving too-big-to-fail banks when they fail – Goldman Sachs, Morgan Stanley, JPMorgan, and “some other banks” are still trying to delay implementation of the new rules.

These banks are asking the Fed to grant them an additional grace period of five years to comply with the so-called Volcker rule, “people familiar with the matter” told Reuters.

The Volcker rule is one of the key elements in the massive and loopholey Dodd-Frank Act that is supposed to, among other things, limit the risk-taking associated with proprietary trading, in-house hedge funds, investments in external funds, and the like. The Volcker rule attempts to get banks out of the business of blowing their own capital on huge risky bets.

Among the many loopholes are exemptions for merchant banking and foreign exchange trading. The law also allows banks to ask for a five-year extension in selling what they deem to be their “illiquid” assets that they have to sell under the Volcker rule.

Silver Going to Move Up Faster Than Anybody Can Imagine

Reasons Your Obamacare Healthcare Premium Is Probably Going Up by at Least 10% in 2017

Get ready, because the 2017 enrollment period for Obamacare -- officially known as the Affordable Care Act -- is right around the corner.

Slated to begin on Nov. 1, 2016, the enrollment process for Obamacare could come with a big shock this year -- a sticker shock. Based on early rate request indications from individual state press releases, and an analysis conducted by the Kaiser Family Foundation of 14 major cities in mid-June, the average Obamacare healthcare premium in the U.S. could be headed higher by at least 10% in 2017.

It's hard to pick out a single culprit, as nearly every state that's reported insurer rate hike requests thus far has an average or weighted increase north of 10%. One standout is Arizona, where the two largest insurers in the state, Blue Cross Blue Shield (BCBS) of Arizona and Phoenix Health Plans, which insure 113,400 of the state's 152,600 Obamacare members, are requesting respective premium increases of 64.9% and 60%.

In Tennessee, BCBS of Tennessee, which enrolled roughly 222,800 of Tennessee's 304,300 Obamacare members in 2016, is requesting a 62% premium hike in 2017. Once more, BCBS of Illinois, which controls 70% of the Illinois Obamacare market, is asking for a 50.2% premium hike. Humana (NYSE: HUM) isn't much better, either, with a 46.3% rate hike request on the table in Illinois.

The Death Of Brick-And-Mortar Stores: Macys Is Just The Beginning – Black Friday Could Change Drastically

The fun of going to shopping malls, department stores, and stand-alone locations may soon be a thing of the past. Brick-and-mortar stores are in danger of dying out completely and it has been happening little by little over the past decade. Now, the giant known as Macys is closing around 15 percent of its existing stores and they aren’t the only ones. Online shopping may very well cause the eternal death of brick-and-mortar locations and change shopping entirely.

Not only will normal shopping be changed, but Black Friday could end up changing drastically. As reported by CNN Money earlier this week, Macys will close 100 stores nationwide by early 2017. The locations of these stores are not exactly known yet, but it doesn’t really seem to matter. They are far from the only company that has seen their numbers go down due to the success of Amazon and other online retailers.

Some have wondered if it’s just online retailers causing customers to stop frequenting brick-and-mortar locations such as Macys. Slate raises the point that virtually everyone is to blame for the store closings and it is because they are all choosing to shop online.

The problem doesn’t just exist with Macys, either. Over the past few years, a number of retailers have decided to close some of their nationwide stores and get overall costs down since customers aren’t visiting them as often.

The Incredible Shrinking Stock Market

The stock market is shrinking… literally. Since 2009, US companies have spent over $2 trillion buying back their own stocks with the majority of those purchases financed by debt issuance. Large capitalization companies are issuing historically high levels of corporate debt at ultra-low rates, and instead of hiring workers or investing in R&D, they are using the capital to buy back their own shares. Share buybacks do nothing to help fundamental growth rates of businesses; however, they do reduce the number of shares outstanding, artificially boosting earnings per share, and hence reducing price-to-earnings ratios, and therefore helping to boost share prices.

A majority of S&P 500 companies use EPS growth targets (rather than sales or operating growth) as a means to evaluate executives for the purposes of stock option payouts. As a result, there is ample incentive for managers to use buy-backs to manufacture EPS growth rates, even if the company isn’t actually growing it core business. For the first time in history, companies in the S&P 500 index spent more than their entire annual operating earnings on share buybacks and dividends.

The buyback craze generates a floor underneath markets, artificially supports earnings, lowers volatility, and represents a wealth transfer from investors to the corporate elite. Empirically, share buybacks have had a tangible effect in shaping the dominant mean reversion characteristics of the current volatility regime.

Share buybacks, in and of themselves, are only a tool and are neither good nor bad. When used correctly they are an effective method for management to add shareholder value by purchasing shares below their intrinsic value. “Below intrinsic value” are the operative words, because if a company is buying back shares at above the intrinsic value of the business it is against the interests of long-term investors. Today, ultra-low interest rates have enabled managers to game the system by using leveraged share repurchasing programs to engineer higher earnings to get fat bonuses regardless of intrinsic value. Unable to generate organic revenue growth by running their core business, corporate CEOs have turned to financial engineering to ensure their bonus triggering EPS targets are met.

Thousands in Shelters from La. Floods

Dairy Farmers Seek U.S. Help to Cut Into Cheese Glut

Dairy farmers drowning in cheap milk begged agricultural officials on Friday to buy up tens of thousands of tons of cheese to help bail them out.

Jim Mulhern, chief executive of the National Milk Producers Federation, asked U.S. Agriculture Secretary Tom Vilsack to buy $150 million worth of cheese to protect struggling dairy farmers and provide 90 million pounds of food to needy Americans.

“Dairy producers here in the United States need assistance,” Mr. Mulhern wrote to Mr. Vilsack. A spokesman for the Agriculture Department said the regulatory body “shares the concerns for our nation’s dairy farmers, who like many in the farm community are facing tight margins,” and that it would review the letter.

Milk prices for farmers have plunged 13% in the past year to around $1.25 a gallon, their lowest point since October 2009, amid a barnyard-wide glut in agricultural commodities from corn to cattle. Favorable weather at home and skyrocketing production globally have pushed down prices on staple grains as well as the milk and the meat of animals that feed on them.

Congrats you won a gold medal. Now here's your tax bill

Michael Phelps may be untouchable in the water, but even he can't out-swim the Tax Man. America's Olympic medalists must pay state and federal taxes on the prize money they get for winning. The U.S. Olympic Committee awards $25,000 for gold medals, $15,000 for silver and $10,000 for bronze.

That's not all. Olympians also have to pay tax on the value of the medals themselves. Gold and silver medals are made mostly of silver, while bronze medals are composed of mostly copper. Rio's medals are among the largest and heaviest ever and contain about 500 grams of either silver or copper.

The value of a gold medal is about $564; silver is worth about $305. Bronze is worth a negligible amount so it's not taxed.

Taxes are yet another burden for Olympians -- the majority of whom are already struggling to get by. The U.S. is one of the only countries that doesn't provide government funding to its Olympians. A handful of lucky athletes land lucrative endorsement deals. But most of them rely on small stipends from the USOC, support from local businesses or supplemental income from a day job.

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