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Monday 10.17.2016

Blockchain could soon power stock markets, music sales, and even prevent child labor

It's a technology conceived by the mysterious creator of bitcoin — the digital currency championed by a motley crew of privacy-obsessed libertarians, social activists, and some criminals.

Now the idea of blockchain has gripped Wall Street's biggest institutions. Its enthusiasts think it could change the world. Sure, it would make contracts more enforceable and speed up the settlement of stock trades — hence the interest from big banks. But some see it going much further, cracking down on sex trafficking, music piracy, and child labor.

And the key to all that — what attracts these different factions — is something that, on the surface at least, sounds rather banal: a digital ledger, like the one in your checkbook.

"Blockchain is a truly extraordinary technology that does really mundane things," said Paul Brody, Ernst & Young's global blockchain leader. But for all the promise, these big questions remain: Who will foot the bill, and is it really as secure as supporters say?

A recession is coming — so hide in gold, says influential investor Raoul Pal

Mirror, mirror on the wall, which asset is most mispriced of all? According to a Goldman Sachs alum who predicted the financial crisis in 2008, it’s gold.

The precious metal should be a lot more expensive when the likelihood of a global financial collapse and a move toward negative interest rates is accounted for, says Global Macro Investor founder Raoul Pal, who now sees a U.S. recession within 12 months.

Recent losses for gold may have dented investor confidence. Gold GCZ6, -0.25% is up 18% this year, but the first full week of October marked its worst seven-day performance in over three years; it also posted a three-month loss of nearly 6% on a continuous basis. Uncertainty about Brexit and the timing of a Federal Reserve rate hike triggered a rush into the dollar, which often moves inversely to the metal. (Higher rates can work against gold, but the metal becomes a safe haven if the economy slows.)

“As we get to negative interest rates, gold is a good place to park your cash,” said Pal, who discussed his outlook with MarketWatch in a September interview and a follow-up conversation over email.

2016 Election is Criminality vs Good Guys

Tinfoil: It’s Getting Harder To Leave Home Without It

It used to be when someone mentioned the term “tinfoil cap wearing,” “conspiracy theorist,” “lunatic fringe,” etc, etc. It was usually in reference to a subset of individuals or groups that resided in some dark corners or basements believing “mind control” went far beyond just propaganda. i.e., It was actually the government (or aliens!) sending out undetectable frequencies directly into the minds of the masses. And, the only protection was: tinfoil. With it’s best use fashioned and adorned as a cap. It’s been a running joke (as it should be) longer than most can remember.

Yet, with all that said, it’s getting harder to be out amongst the public as an informed person and not feel as if there isn’t something to all the “lunacy.” For if you speak to nearly anyone these days be it family, friends, coworkers, or the occasional overheard conversations of strangers. You can’t help wondering: how can so many be so clueless? Or worse: how is it they can argue some form of righteous stance about this, or that, all the while they are “knee-deep” themselves in the same (if not worse) muck they say is being slung from the other side?

It’s moved so far beyond ridiculous I’m now starting to believe there is something in the water. However, is it in the tap or, is it in the bottled? For the people able to afford bottled, as opposed to plain tap, seem to have some of the more “crazy” arguments I’ve heard in quite some time. And that’s saying something. It’s the only thing that explains it.

(Note: “informed” would include you dear reader, for the mere act of you reading this, whether you agree or disagree, proves ipso facto that you are searching out information as to draw your own conclusions. And to that – I tip my hat too you.) So now that you’ve read this far, let’s both don a silvery chapeau and contemplate what might be one of the scariest propositions (if found true) that could change everything (and I do mean everything) as we know it. e.g., “WWIII”

Wells Fargo’s CEO replacement raises more questions

Last week, in the middle of an exceptionally wild election news cycle, Wells Fargo CEO John Stumpf “retired,” effective immediately. Stumpf surprised regulators and employees by giving up the reins of the bank he had led since 2007, a mere two days before Wells Fargo reported its earnings.

His attempt to get lost in the news cycle and turn control over to none other than his chief lieutenant, Tim Sloan, may not satisfy the feds.

After hearings before the Senate Banking Committee and the House Financial Services Committee last month, Stumpf voluntarily forfeited $41 million in unvested stock that had been granted for performance. But there was no getting past the foolish mistakes and mishandling of bona fide criminal conduct by the consumer bank’s employees, by opening 2 million fake credit card and savings accounts in real customers’ names without their knowledge.

Sen. Elizabeth Warren (D-Mass.) publicly lambasted the too-cool Stumpf at the Senate hearing, calling on him to resign and accusing him of “gutless leadership.” It appears the bank with the stagecoach logo hasn’t learned much about dealing with Washington. Sloan, though not involved in this fiasco, has been the clear heir apparent for years.

New Report Highlights America’s Pension Crisis

$17,427 is enough money to buy a brand new model of at least ten different kinds of cars. It’s also the amount of money every man, woman, and child in America owes on the total unfunded pension obligations of our fifty states. A new report entitled “Unaccountable and Unaffordable” from the American Legislative Exchange Council (ALEC) highlights the drastic underfunding problem pensions are facing. In short, states have not put enough money away to pay out the promises that politicians and unions have made to government workers.

Collectively, state pension programs face a shortfall of $5.6 trillion according ALEC’s new report – more money than the federal government spends annually. And like federal government spending, the amount is rising dramatically. Since the last report on state pensions in 2014, this unfunded liability has increased by $900 billion.

Why has this problem continued to worsen? By its very nature the underfunding of pensions is something that can be ignored for a time by politicians. As long as the state can meet its current obligations, very few people notice the massive funding gap coming in the future. As a result, politicians have chosen political expediency over the tough choices about how to fully fund pensions.

Illinois offers a prime example. According to the ALEC report, Illinois only has funded 23.8% of its future pension obligations, leaving every citizen on the hook for $28,200. For years, Illinois neglected to fully fund its actuarial required contribution (ARC), a minimum payment to cover the current year’s obligation and reduce some of the state’s unfunded liability. Instead of funding their pensions and reducing the debt, Illinois choose instead to spend the money on other programs, leaving the pension problem for another day.

Drowning In Debt: 35 Percent Of All Americans Have Debt That Is At Least 180 Days Past Due

More than a third of all Americans can’t pay their debts. I don’t know about you, but to me that is a shocking figure. As you will see below, 35 percent of the people living in this country have debt in collections. When a debt is in collections, it is at least 180 days past due. And this is happening during the “economic recovery” that the mainstream media keeps touting, although the truth is that Barack Obama is going to be the only president in United States history to never have a single year when the economy grew by at least 3 percent. But at least things are fairly stable for the moment, and if this many Americans are having trouble paying their bills right now, what are things going to look like when the economy becomes extremely unstable once again.

The 35 percent figure is a nugget that I discovered in a CNN article about Detroit that I was reading earlier today…

And the city’s troubles have left a mark on the financial stability of its residents in a big way, according to a new report from the Urban Institute. About 66% of residents have debt in collections — meaning more than 180 days past due — at a median amount of $1,847. Across the U.S., 35% of Americans have debt in collections.

It is hard to believe that 66 percent of the residents of one of our largest cities could have debt in collections, but without a doubt the city of Detroit is a complete and utter economic wasteland at this point. But to me, the 35 percent figure for the nation as a whole is a much greater concern. And much of the debt that is in collections is credit card debt.

Is the Fed's next decision on rates all about politics?

When the Federal Reserve meets next month, the question of will they or won't they hike interest rates will be clouded by the fog of presidential politics.

The U.S. central bank's Nov. 2 meeting is rife with juicy storylines, as the key question of whether they will boost borrowing costs for the first time in 2016 comes amid claims from Republican presidential nominee Donald Trump that the Janet Yellen-led Fed is playing politics with policy by keeping rates low to make President Obama look good and help rival Hillary Clinton win the election.

Trump has said he will replace Yellen if he is elected. Yellen has defended the central bank's independence, saying the Fed doesn't talk about politics at its meetings nor do politics play a role in its policy decisions. Yellen also fended off criticism from a Republican lawmaker that Fed governor Lael Brainard's $2,700 contribution to Clinton's campaign represented a conflict of interest.

Amid this backdrop, investors still have to handicap what the Fed will do. Paul Hickey, co-founder at Bespoke Investment Group, recently went through a "theoretical exercise" in which he argued that a Fed rate increase at its November meeting -- just six days before the Nov. 8 presidential election -- would help blunt criticism that the Fed is making policy with politics in mind. A November hike, Hickey theorized, would show "independence" and "reinforce (the Fed's) apolitical framework."

China's Bad Credit

There is good news when it comes to China's scary and still-growing pile of debt: At least the government recognizes the problem. Its attempts to mitigate those risks, however, seem doomed to fall short.

The government's recent decision to create a market for credit default swaps is a case in point. The idea, as elsewhere, is to give banks and investors a means of pricing and trading the risk of Chinese companies defaulting on their debts. The need is obvious: Official measures of non-performing loans are worsening, while unofficial estimates say their share may have reached anywhere from 8 percent to 20 percent. Anything that spreads that risk should improve financial stability.

Yet, as envisioned, this new CDS market is unlikely to do much to improve the situation. For one thing, all but the largest companies already have to purchase credit insurance when taking out loans from giant state banks. There's no pricing differential on this insurance, of course. But for the new system to function effectively, the government would have to let markets freely set the price of credit risk.

China doesn't exactly have a stellar record of allowing markets to set prices in any field, whether in stocks, real estate or currencies. If credit default swaps started to indicate a rising risk of default at a major state-owned company, it's hard to imagine officials wouldn't intervene to reverse that impression.

The shocking pain of American men

Once upon a time, nearly every man in America worked. In 1948, the labor-force participation rate was a staggering 96.7 percent among men in their prime working years.

That statistic has been steadily declining ever since. Today, about 11.5 percent of men between the ages of 24-54 are neither employed nor looking for a job. Economists say that these people are “out of the labor force” — and they don’t figure into statistics like the unemployment rate.

This demographic trend has been the subject of much noise and consternation lately. Nicholas Eberstadt, a demographer at the conservative American Enterprise Institute, calls the development a “quiet catastrophe: the collapse, over two generations, of work for American men.”

Eberstadt concedes that he can’t pinpoint the precise causes, but he implies that the problem, at its root, emanates from some kind of moral or societal dysfunction. “Time-use surveys suggest [these men] are almost entirely idle,” Eberstadt wrote in a Wall Street Journal op-ed a few weeks ago. “Unlike in the past, the U.S. is now evidently rich enough to carry them, after a fashion,” he added.

Keiser Report: ‘Stunned Commoners’

Watchdog says about 15 Swiss banks in money laundering 'red zone'

Roughly 15 Swiss banks are in a "red zone" of lenders particularly exposed to money laundering risks, the head of Swiss banking watchdog FINMA said in a newspaper interview published on Sunday.

Swiss federal prosecutors last week said that they have opened criminal proceedings against Zurich-based Falcon Private Bank for alleged failure to prevent suspected money laundering linked to Malaysia's scandal-tainted 1MDB fund.

Falcon is the second Swiss bank, after BSI, to face a criminal investigation by Switzerland's Office of the Attorney General over links to 1Malaysia Development Berhad (1MDB). The move is partly based on an investigation by FINMA, which has also opened proceedings against several other lenders.

"We have introduced a warning system in relation to money laundering risks," FINMA Chief Executive Mark Branson said in an interview with Swiss newspaper SonntagsZeitung. "Roughly 15 banks are in the red zone here. That means they are particularly exposed." Branson did not name the banks concerned but said that most of them are involved in asset management and often have clients from emerging markets, adding that the lenders were from all areas of the country and of various sizes.

JPMorgan Will No Longer Offer 7-Year and 8-Year Auto Loans

When JPMorgan Chase & Co. (NYSE: JPM) reported third-quarter results last Friday, the bank’s chief financial officer said on the conference call that JPMorgan would “pull back” on auto loans with repayment periods of 84 months or more. The bank sees more risk from these very long-term auto loans, based on “where we are in the cycle.”

The first-quarter average loan amount for a new car was $30,032, and the average term of a loan was 68 months. And the lower a buyer’s credit score, the longer the average loan term. Borrowers with higher credit scores take shorter term loans, while those with lower credit terms take longer term loans, according to a report from Experian published in August.

The report also noted that the average loan rate on a $30,000 car loan in the first quarter was $4.79%. The advantage to the buyer of a longer term is a lower monthly payment. The disadvantage is that the borrower pays more in interest charges.

As the borrower is paying off the loan, the value of the car depreciates. That means that it takes longer for the borrower to establish any equity in the vehicle. If the borrower defaults on a seven-year or eight-year loan, chances are higher that the car is worth less than the amount remaining to be repaid on the loan.

More Problems For Obamacare? 1.4 Million To Lose Health Insurance Next Year Under Affordable Care Act

At least 1.4 million people from 32 states could lose their health insurance under the Affordable Care Act, commonly known as Obamacare, as their plans are set to disappear from the program next year. They will have to find new coverage in a market that will likely have fewer options and higher prices, Bloomberg reported Friday.

The coverage losses come after Aetna and UnitedHealth Group, as well as some regional insurers, announced they plan to leave Obamacare's markets in 2017 and instead offer individual coverage outside of the program’s exchanges. That means there will be fewer, but more expensive, plans, and the same doctors and hospitals people used before may not be included under the Affordable Care Act, regulators and insurance customers told Bloomberg.

Obamacare's healthcare exchange has been up and running for just over three years now and is still a subject of perpetual scrutiny. Many Republican politicians see it as the federal government overstepping its boundaries. Under the law, all Americans must have insurance or pay a fine. Insurers, meanwhile, claim it puts a strain on their business and some employers take issue with its coverage mandates. UnitedHealthcare, the nation's largest insurer, said it would lose about $1 billion on Obamacare policies in 2015 and 2016. Aetna, the nation's third largest health insurance company, announced earlier this year it would lose $300 million on the plans.

"Providing affordable, high-quality health care options to consumers is not possible without a balanced risk pool," said Aetna CEO Mark Bertolini at the time.


Look, we don’t want to be Brexit doom and gloomers. There are reasonable arguments on both sides. We know. But, as things stand right now, Sterling is the most devalued of 2016 among the major global currencies.

The pound has opened up a wide lead against the Argentine peso, the other contender in this race to the bottom. The two had been jockeying, and the pound previously dipped slightly against the peso for a few days back in July and August. Now, the pound has properly fallen again to lose more than 15% of its value since the start of the year.

But another steep drop has happened in the week – when its value plunged to a 168 year low when measured against a basket of other currencies (measured by the Bank of England).

During a debate on Brexit last Wednesday on about how exactly the UK should leave the European Union, the pound decided to make history. Since then has only recovered slightly to sit at 1.219 dollars.

Young Hillary Voters Can't Name An Accomplishment Of Hers

How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More

A couple of years ago, Walmart, which once built its entire branding around a big yellow smiley face, was creating more than its share of frowns.

Shoppers were fed up. They complained of dirty bathrooms, empty shelves, endless checkout lines and impossible-to-find employees. Only 16 percent of stores were meeting the company’s customer service goals.

The dissatisfaction showed up where it counts. Sales at stores open at least a year fell for five straight quarters; the company’s revenue fell for the first time in Walmart’s 45-year run as a public company in 2015 (currency fluctuations were a big factor, too).

To fix it, executives came up with what, for Walmart, counted as a revolutionary idea. This is, after all, a company famous for squeezing pennies so successfully that labor groups accuse it of depressing wages across the American economy. As an efficient, multinational selling machine, the company had a reputation for treating employee pay as a cost to be minimized. But in early 2015, Walmart announced it would actually pay its workers more.

Big Central Bank Assets Jump Fastest in 5 Years to $21 Trillion

The world’s biggest central banks are bulking up their balance sheets this year at the fastest pace since 2011’s European debt crisis to boost lackluster economic recoveries with asset purchases that are supporting stock and bond prices.

The 10 largest lenders now own assets totaling $21.4 trillion, a 10 percent increase from the end of last year, data collected by Bloomberg show. Their combined holdings grew by 3 percent or less in both 2015 and 2014.

The accelerating expansion of central banks’ balance sheets comes as debate rages over whether their asset purchases and continued low interest rates are creating bubbles, especially in the bond market. Such quantitative-easing programs are aimed at driving up the prices of the securities they purchase to lower bond yields, encourage investment and boost economic growth.

The growth of central-bank holdings has coincided with the mostly upward trend of stock and bond prices. As the top 10 expanded their balance sheets by 265 percent since mid-October 2006, the MSCI All Country World Index of equities gained 19 percent and the Bloomberg Barclays Global Aggregate Index of bonds advanced 50 percent. Over the past decade, the Swiss National Bank expanded its holdings the most among those with the largest portfolios, almost eight-fold in U.S. dollar terms. The Bank of Russia was the least aggressive with a 68 percent increase.

NEWS to Disturb the Comfortable...

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