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Thursday 12.15.2016

Fed raises interest rates amid improved economic outlook

The Federal Reserve, as expected, nudged up short-term interest rates by a quarter of a percent Wednesday, signaling its confidence that the economy is sufficiently robust to handle it.

In its announcement, the Fed predicted a gross domestic product growth of 2.1 percent for the next year. A decline in the unemployment rate to 4.6 percent, from 4.9 percent in November, and other indicators give it confidence that years of sluggish growth are finally at an end.

“We’re on a good path to reaching our objectives,” Fed Chair Janet Yellen said in a news conference. In perhaps an oblique reference to President-elect Donald Trump’s complaint that the Fed should have elevated rates earlier, she noted that she thought the it “is not behind the curve.”

Asked if she wanted another term when hers expires in January 2018, she said she had not thought about it. Mr. Trump has said he wanted to see her replaced. In broad terms, she defended the Dodd-Frank law imposing tighter federal controls on bank, saying it was “important” to ensure that lenders keep solid amounts of capital to cushion them in bad times. Mr. Trump has talked about racheting back Dodd-Frank.

Caterpillar confirms new round of layoffs

Caterpillar Inc. has initiated a new round of layoffs in the wake of worsening outlooks for 2017 - and the prospect of a rebound appearing even more distant. The world's largest manufacturer of earth moving equipment began issuing notices to an undisclosed number of employees throughout the company Wednesday as part of cost saving measures beyond previously announced restructuring plans.

"The company will try to place the impacted employees in other available positions throughout the company. Displaced employees will receive severance packages from the company and outplacement services from appropriate agencies to provide support during this transition," read a statement issued by Caterpillar. "There is never a good time for announcements like this, but we recognize this is particularly difficult for employees and their families during the holidays."

In the fall of 2015, Caterpillar announced a major restructuring plan that included the elimination of up to 10,000 positions and closure or consolidation of more than 20 facilities globally through 2018. The plan was designed to save $1.5 billion annually once fully implemented, though additional consolidation and job cuts arrived in the middle of 2016, and the company has since indicated savings are closer to $2 billion.

The company reported $47 billion in sales and revenue for 2015, down from just over $55 billion the previous year and a peak of nearly $66 billion in 2012. Caterpillar expects $39 billion in sales and revenue this year, after initially predicting about $45.5 billion for 2016.

It Happened Again: Yahoo says a billion user accounts were stolen in possibly the biggest hack of all time

Yahoo has announced that "more than one billion user accounts" may have been stolen by hackers during an attack that took place in August 2013, according to a press release.

This is a separate hack than the one that Yahoo announced back in September, in which as many as 500 million user accounts were compromised.

"The company has not been able to identify the intrusion associated with this theft," Yahoo says, but that "the company has connected some of this activity to the same state-sponsored actor believed to be responsible for the data theft the company disclosed on September 22, 2016."

With a billion accounts at risk, that would make this the biggest breach of all time — bigger than the Myspace breach of 360 million user accounts and 427 million passwords. The breach could have implications for the $4.8 billion sale of Yahoo to Verizon, which has yet to close.

David Stockman: We have a massive bubble in the market

Uber’s self-driving cars start picking up passengers in San Francisco

Uber’s self-driving cars are making the move to San Francisco, in a new expansion of its pilot project with autonomous vehicles that will see Volvo SUVs outfitted with sensors and supercomputers begin picking up passengers in the city.

The autonomous cars won’t operate completely driverless, for the time being – as in Pittsburgh, where Uber launched self-driving Ford Focus vehicles this fall, each SUV will have a safety driver and Uber test engineer onboard to handle manual driving when needed and monitor progress with the tests. But the cars will still be picking up ordinary passengers – any customers who request uberX using the standard consumer-facing mobile app are eligible for a ride in one of the new XC90s operated by Uber’s Advanced Technologies Group (ATG).

There’s a difference here beyond the geography; this is the third generation of Uber’s autonomous vehicle, which is distinct from the second-generation Fords that were used in the Pittsburgh pilot. Uber has a more direct relationship with Volvo in turning its new XC90s into cars with autonomous capabilities; the Fords were essentially purchased stock off the line, while Uber’s partnership with Volvo means it can do more in terms of integrating its own sensor array into the ones available on board the vehicle already.

Uber ATG Head of Product Matt Sweeney told me in an interview that this third-generation vehicle actually uses fewer sensors than the Fords that are on the roads in Pittsburgh, though the loadout still includes a full complement of traditional optical cameras, radar, LiDAR and ultrasonic detectors.

The Real Reason the Elites Want to Ban Cash

As we keep warning, the War on Cash is set to accelerate. If you want proof of this, consider that India has not backed down on its cash ban in any way shape or form… despite the fact that the cash ban has been a complete disaster politically with widespread protests. Why? Because it is accomplishing the Elites’ Central Planning goals:

…Indians are switching to electronic payments more rapidly than many experts had predicted, and in speaking of the recent currency moves, Mr. Modi has begun emphasizing the benefits of a cashless economy over the anticorruption fight.

Other countries are taking note that you can impose a major cash ban without committing political suicide. Australia is now pushing for an end to $100 bills. SAY goodbye to the $100 note. Australia looks set to follow in the footsteps of Venezuela and India by abolishing the country’s highest-denomination banknote in a bid to crack down on the “black economy”. Speaking to ABC radio on Wednesday, Revenue and Financial Services Minister Kelly O’Dwyer flagged a review of the $100 note and cash payments over certain limits as the government looks to recoup billions in unpaid tax.

Once again, the proposal is being pushed as a crack down on those who break the law… but the reality is it’s all about the Government wanting to obtain 100% control of the financial system. How do we know this? Because the architect of the global cash ban, former IMF Chief Economist Ken Rogoff, outlines the REAL goal in of a cash ban in his 2014 paper, Costs and benefits to phasing out paper currency:

Trump Tweets about China, US Businesses Freak out

China is important to US companies. Qualcomm gets 57% of its revenues in China, Micron 43%, Apple 23%, Jabil 21%, Boeing 13%, Wynn Resorts 60%, according to Bloomberg’s math.

In the last earnings report, GM specifically pointed at its “strong performance in China,” the largest auto market in the world. In the first three quarters this year, GM sold 2.7 million vehicles in China, 38% of GM’s global sales, and up 9% year-over-year. GM’s global vehicle sales rose a mere 0.4%. Without the boom in China, GM’s total vehicle sales would have declined.

And much of the supply chain of US companies is at least partially dependent on China. US companies have long ago jumped on the China bandwagon. With growth languishing in the US, Europe, and Japan, China was the place to be – both, as a booming market for American brands and as a manufacturing base.

This is part of a complex two-way, awfully lopsided $627-billion trade relationship, with the US running a $337 billion trade deficit with China – for the great benefit of US companies and with, let’s say, mixed impact on the US economy. But it cuts both ways: one country’s exports are the other country’s supply chain.

Ransomware On Track To Be $1 Billion Business

Did Unemployment Predict Trump’s Win?

According to the Bureau of Labor Statistics, unemployment reached a nine-year low last month. Most economists agree that we’re approaching full employment. Still, wages haven’t grown as quickly as it seems like they should, given the shrinking pool of candidates available to hiring managers. There are a variety of reasons why this is the case — declining union membership, for one, and therefore diminished bargaining power for workers. But, some have pointed out that the official employment numbers do not include every person in the country who doesn’t have a job.

President-elect Donald Trump is one of them. At various points in his campaign, Trump made reference to the fact that official unemployment numbers don’t account for workers who drop out of the workforce entirely.

“The number isn’t reflective,” Trump said at a media event in September, 2015. “I’ve seen numbers of 24 percent — I actually saw a number of 42 percent unemployment. Forty-two percent. …The unemployment rate is probably 20 percent, but I will tell you, you have some great economists that will tell you it’s a 30, 32. And the highest I’ve heard so far is 42 percent.”

No economist has gone on the record as saying that employment is 42 percent. However, it is true that the unemployment rate doesn’t account for what the Economic Policy Institute refers to as missing workers – “potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job.” Currently, the unemployment rate is 4.6 percent; if missing workers were counted in the tally, the EPI says it would be 6 percent.

Wells Fargo’s Hometown Penalizes Bank Amid Fake-Accounts Scandal

Wells Fargo & Co., the bank working to contain a scandal over bogus accounts, was suspended from doing some business with its hometown of San Francisco.

The city’s Board of Supervisors on Tuesday suspended the firm for two years from providing services as a broker dealer, in commercial banking and in commercial paper. The measure, sponsored by Supervisor John Avalos, also removed Wells Fargo from securities investments and counterparty/repurchasing agreements. San Francisco had barred the lender in September from a banking program for low-income residents.

Authorities including the U.S. Consumer Financial Protection Bureau have fined the company $185 million for potentially opening more than 2 million deposit and credit-card accounts without authorization. On Tuesday, federal regulators banned Wells Fargo from buying non-bank companies or setting up international units because of deficiencies in its restructuring plan in the event of failure.

San Francisco officials said that the bank should identify the improper sales practices conducted in the city, the identities of all residents affected and the plan to make them whole before the firm can resume business with the city. They may pursue more sanctions if the information isn’t received.

Don’t Forget About Deutsche Bank

The banking crisis in Italy has gotten all the attention lately, but one of the biggest banks in the world is still a serious potential problem. The bank in question is Deutsche Bank. It’s the largest bank in Germany, by far, and one of the twelve largest in the world. It is difficult to overstate the importance of Deutsche Bank not only to the global economy, but also in terms of its vast web of off-balance-sheet derivatives, guarantees, trade finance, and other financial obligations on five continents.

It’s well known that Deutsche Bank is the “sick man” of European banking. Deutsche Bank is certainly in the “too big to fail” category. Therefore it won’t be allowed to fail. Germany will intervene as needed to prop up the bank.

The problems at Deutsche Bank are well-known. They have suffered through bad debt write-offs and mark-to-market trading losses just like many of their big bank peers. But, the problems go deeper. Deutsche Bank’s capital has barely been adequate under generous ECB “stress tests,” and is completely inadequate under real world scenarios involving a global liquidity crisis of the kind we saw in 2008.

This summer, the U.S. Department of Justice announced that it was seeking $14 billion to settle charges that Deutsche Bank engaged in misleading sales practices with regard to residential mortgage backed securities between 2005 and 2007. Of course, that was just a claim. But, even if Deutsche Bank settles the case for a fraction of that amount, say $5 billion, it will significantly impair an already weak capital base.

Who will be impacted by the interest rate hike?

Obamacare enrollment deadline looms amid questions about replacement

Signups for Affordable Care Act plans gained steam earlier this month with more than 4 million people choosing 2017 plans on the federal exchange through Dec. 10, according to data out Wednesday

The pace continued this week despite vows by Republican officials that the law will be repealed soon after Congress returns in January and in time for the Trump administration. Health and Human Services Secretary Sylvia Burwell tweeted that more than 325,000 people signed up on the federal exchange HealthCare.gov on Monday and about that many chose plans on Tuesday.

HHS has been promoting the law aggressively ahead of the first deadline Thursday for the last open enrollment for Obamacare as we now know it. “Momentum is building,” Burwell said Wednesday. “As we approach the December 15th deadline for consumers to get coverage that begins January 1st, we’re seeing hundreds of thousands of consumers each day signing up for coverage they want and need."

Reports of the law's demise may not be all that premature, but that still doesn't affect the requirement that everyone have insurance for 2017 — or what's known as a hardship exemption. The plans sold on the federal and state exchanges were already priced and posted at the time of the presidential election.

The Global Move Towards a Cashless Society

In many areas of the world, cash is still king. But, as in other parts of the globe, it appears as if its days could be numbered in Australia, which may be preparing to ride the building global demonetization wave. The Australian divisions of financial services giants UBS and HSBC have already floated the possibility of removing high-denomination banknotes from circulation. And global banker Citi, which has a relatively small footprint in the country, has said it would no longer deal in cash, noting that physical currency constituted only 4 percent of transactions made by its customers in the past year. Now, as Australia prepares its mid-year economic update, the Australian Financial Review is reporting that Canberra will establish a task force on the country's shadow economy that will consider withdrawing the nation's biggest banknote, the AU$100, which makes up nearly half of all Australian currency in circulation.

If it follows through with that idea, Australia would join a growing list of countries withdrawing some banknotes from circulation. On Nov. 8, Indian Prime Minister Narendra Modi announced that all 500- and 1,000-rupee notes — 86 percent of the cash in circulation in India — would need to be exchanged by the end of the year, when the existing stocks of bills will no longer be legal tender. In exchange for their old notes, owners will get newly printed 500- and 2,000-rupee bills. Six months earlier, the European Central Bank decided to phase out its 500-euro banknotes. And Monday, Venezuela announced that it would demonetize its 100-bolivar banknotes and replace them with higher denominations as it grapples with hyperinflation.

Monitoring both legal and illicit economic activity is a challenge for any modern state. The way that a country deals with the issue can vary radically, depending on its eventual aims. In India, a vast informal economy in which nine of every 10 transactions are conducted in cash allows buyers and sellers to avoid government scrutiny — and tax bills. Modi's demonetizing strategy aims not only to flush out cash-holders who deprive government coffers but also to foster legitimate anti-corruption goals.

It fulfills a necessary step toward formalizing the underground economy to allow for improved monitoring of the entire economy. In addition, it could increase domestic access to financial services as a way to boost and maintain economic growth. In a sense, the rupee exchange is also an attempt to force Indians to use the formal financial system. Currently, only about half of the country's adult citizens have bank accounts, compared, for instance, to 80 percent of Chinese adults.

A crisis that could implode the European Union

Greece is approaching political and economic turmoil as the country's creditors and the leftist government of Prime Minister Alexis Tsipras dispute over the mixture of the policy measures that will ensure the medium-term fiscal solvency of the country.

On Wednesday, euro zone lenders halted 45 billion euro ($47.7 billion) in short-term debt relief to help the indebted country, which is suffering from a deep recession and high unemployment. This came after the Greek government proposed to make a one-off payout to pensioners in December.

Freezing the flow of funds to Greece now threatens to trigger a renewed flare-up of the Greek debt crisis and would create a further test for the cohesion of the European Union. The debt relief was intended to help weak Greek banks shore up liquidity. Just as concerning, it precludes Greece from participating in the EU's quantitative easing program.

In response, the Athens stock market fell by 3 percent, while the yield on Greece's 10-year government bond rose by 4 percent to its highest level in almost three weeks (7.1%). The harsh move by the EU came after Greek Prime Minister Alexis Tsipras announced last week that 617 million euro ($654 million) will be distributed to 1.6 million low-income pensioners as emergency support, while the scheduled VAT hike on the islands of the north Aegean Sea — which are bearing the brunt of the refugee crisis — will be suspended.

“I Don’t Think We Can Stop It:” The Future of Automation and Job Loss

Last Monday, Amazon announced its new concept store, Amazon Go. The store is powered by sensors, deep learning artificial intelligence (AI), and computer vision, giving customers the ability to browse through the store, take what they want off shelves, and literally go — no need to queue to pay for the items. The only added step to the shopping experience is swiping the free Amazon Go app from their phones once when they enter the store. Their Amazon account automatically gets charged for their purchases when they leave.

The store concept eliminates labor costs incurred by cashiers and is ideal not only for Amazon, but for customers as well. No lines or checkouts? From a shopper’s point of view, it’s the ideal shopping experience, offering a level of convenience that could be game-changing for the retail industry. However, Amazon Go also raises concerns about potential ramifications on employment and the economy.

“With Amazon, it’s not just about reducing labor costs at all — they’ve come up with something disruptive,” says Martin Ford, author of “Rise of the Robots: Technology and the Threat of a Jobless Future,” in an interview at CNBC.

Technology can be a catalyst for the creation or destruction of jobs, but historically, it has always ultimately created more opportunities for employment, not less. That’s not stopping many from speaking out against Amazon Go for its potential to increase unemployment, though. According to Ford, however, the implementation of automation technology is inevitable because it has obvious advantages for both consumers and retailers. “I don’t think we can stop it,” he says. “It’s a part of capitalism, that there’s going to be this continuous drive for more efficiency.”

Industrial Output Falls as Utilities, Manufacturing Weaken

U.S. industrial production fell 0.4 percent in November, a bigger drop than anticipated, due to a steep decline in utility output and a dip in manufacturing, data from the Federal Reserve showed on Wednesday. The drop was the largest decline in industrial production since March, when the index fell 0.9 percent.

Output for October was revised to show a 0.1 percent increase rather than the unchanged level initially reported. Economists polled by Reuters had forecast industrial production falling 0.2 percent in November.

Manufacturing output fell 0.1 percent in November, less than the 0.2 percent decline anticipated by economists. It rose by an upwardly revised 0.3 percent in October.

Utilities production dropped 4.4 percent in November as warmer-than-normal temperatures reduced demand for heating. Utilities output fell by a downwardly revised 2.8 percent in October.

Mike Maloney-Fed Endgame Is Inflation

Rising concern about credit card debt

Numbers crunchers who follow consumer debt are growing increasingly concerned about rising levels of credit card debt. As we reported last week, personal finance site WalletHub recently sounded the alarm, reporting that consumers racked up a record $21.9 billion in new credit card debt in the third quarter alone, the largest increase since 2007. It predicts 2016 will end with a net increase of about $80 billion in credit card debt, with the average household owing more than $8,000.

A new report from the personal finance site NerdWallet looks at total consumer debt, putting the total at $12.35 trillion. Credit card debt alone, it says, averages $16,061 per household.

It's one thing to owe money on a mortgage – there is always a cost of putting a roof over your year and right now mortgage rates are low. But the report's authors note that credit card debt is expensive, with the average household with a credit card balance paying over $1,200 in interest each year.

"Cost of living continues to outpace wage increases, contributing to increasing debt levels," said Sean McQuay, NerdWallet's credit and banking expert. But McQuay warns that consumers turning to credit cards just to meet monthly expenses are falling into an expensive debt trap. He says the average credit card interest rate is nearly 19%. "Paying down credit card debt will mean changing spending habits or increasing earning power, both of which may be difficult adjustments, but they are the only way to build financial freedom," he said.

Ashley Madison’s Penalty For Exposing Details On 36 Million Users? About $.04 Per Person

In 2015, a major data breach at AshleyMadison.com — the dating site targeted at cheaters — exposed information for some 36 million accounts. The company has now entered into a deal that settles federal and state charges that Ashley Madison: misled users about data security and failed to protect user information; charged users to delete profiles (but didn’t); and used fake profiles to lure in customers. While the settlement has a price tag of $8.75 million, Ashley Madison will actually pay significantly less than that.

The Federal Trade Commission’s complaint [PDF] against Ashley Madison’s Toronto-based corporate parent includes an array of allegations, some of them directly connected to the summer 2015 data breach, and others arising from the revelations that resulted from that breach.

For example, after the massive hack — affecting users from 46 different countries — was made public, it became apparent that some of the female profiles on Ashley Madison were in fact so-called “fembots” — the FTC refers to them as “engager profiles” — fakes “created by [Ashley Madison] staff who communicate with consumers in the same way that consumers would communicate with each other — as a way to engage or attract additional consumers to AshleyMadison.com.”

According to the FTC, all but three of the 28,417 engager profiles on Ashley Madison in 2014 were female. The complaint alleges that Ashley Madison reused photos and other information from dormant profiles on the site to create these bogus users.

NEWS to Disturb the Comfortable...

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